Nikkei Surges on Steel Merger Plans and Impressive Earnings

Japan's Nikkei 225 gained 1.1% to close at 10,544 on Friday. Markets in Hong Kong and China remained closed for the Lunar New Year.

Japanese investors were giddy with excitement as positive earnings reports and the announcement of a major merger flooded the news. There was palpable relief as optimism replaced the gloom and doom, and investors were reminded that there's a real possibility that Japan could pull out of its quagmire and the economy has a chance of springing back to life.

Nippon Steel Corp. and Sumitomo Metal Industries were the talk of the town, as their CEOs (pictured) announced a plan to merge early in 2012. This would create the world's second largest steelmaker, according to the Japan Times. Today shares in both companies skyrocketed with Sumitomo Metal Industries shooting up 16.1% and Nippon Steel rallying 9.1%.

Companies filing stellar earnings reports added to investor enthusiasm. Sony surged 1.8% after clocking up stronger-than-expected third-quarter profits. Hitachi, which makes everything from small home appliances to nuclear power plants, climbed 3% after forecasting $2.8 billion in net income for the year. Competing electronics company Sharp also climbed higher, with shares advancing 5.3% on reports that it's partnering up with a Taiwanese firm to produce LCD panels. Sharp's gains were also helped by a surge in tv sales that nearly tripled the firm's nine-month operating profit, according to Reuters.

Shares that bucked today's trend included Mazda, which sank 4.6%, and Asahi Kasei, a fiber and chemical company that tumbled 3.4%. Other automakers also slipped, with Isuzu losing 0.7% and Honda dipping 0.1%.

But even those losses in the car sector were countered by gains among car parts makers. Jtekt racked up a 7.8% gain and Alps Electric advanced 2.2%.